Toyota 2006 Annual Report Download - page 97

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Accounting changes—
In December 2004, FASB issued FAS No. 153, Exchanges of
Nonmonetary Assets—an amendment of APB Opinion No. 29
(“FAS 153”). The guidance in APB Opinion No. 29, Accounting
for Nonmonetary Transactions, is based on the principle that
exchanges of nonmonetary assets should be measured based
on the fair value of the assets exchanged. The guidance in
that Opinion; however, included certain exceptions to that
principle. FAS 153 amends Opinion 29 to eliminate the excep-
tion for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of non-
monetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change signifi-
cantly as a result of the exchange. Toyota adopted FAS 153
for nonmonetary asset exchanges occurring in and after fiscal
periods begun after June 15, 2005. The adoption of FAS 153
did not have material impact on Toyota’s consolidated finan-
cial statements.
In March 2005, FASB issued the FASB Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations—an
interpretation of FASB Statement No. 143 (“FIN 47”). This
Interpretation clarifies that the term conditional asset retire-
ment obligation as used in FASB Statement No. 143,
Accounting for Asset Retirement Obligations, refers to a legal
obligation to perform an asset retirement activity in which the
timing and (or) method of settlement are conditional on a
future event that may or may not be within the control of the
entity. FIN 47 requires a company to recognize a liability for
the fair value of a conditional asset retirement obligation if the
fair value of the liability can be reasonably estimated. The fair
value of a liability for the conditional asset retirement obliga-
tion should be recognized when incurred. Toyota adopted FIN
47 in the fiscal periods ended after December 15, 2005. The
adoption of FIN 47 did not have material impact on Toyota’s
consolidated financial statements.
Recent pronouncements to be adopted in future
periods—
In November 2004, FASB issued FAS No. 151, Inventory
Costs—an amendment of ARB No. 43, Chapter 4 (“FAS 151”).
FAS 151 amends the guidance in ARB No. 43, Chapter 4,
“Inventory Pricing,” to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that “…under some circumstances, items
such as idle facility expense, excessive spoilage, double freight,
and rehandling costs may be so abnormal as to require treat-
ment as current period charges…”. FAS 151 requires that
those items be recognized as current-period charges regard-
less of whether they meet the criterion of “so abnormal.”
In addition, this Statement requires that allocation of fixed
production overheads to the costs of conversion be based on
the normal capacity of the production facilities. FAS 151 is
effective for inventory costs incurred during fiscal years begin-
ning after June 15, 2005. Management does not expect this
statement to have a material impact on Toyota’s consolidated
financial statements.
In December 2004, FASB issued FAS No. 123(R), Share-
Based Payment (revised 2004) (“FAS 123(R)”). FAS 123(R) is a
revision of FAS 123, supersedes APB 25, and its related imple-
mentation guidance. FAS 123(R) requires a public entity to
measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date
fair value of the award. That cost will be recognized over the
period during which an employee is required to provide ser-
vice in exchange for the award. FAS 123(R) also requires a
public entity to initially measure the cost of employee services
received in exchange for an award of liability instruments
based on its current fair value; the fair value of that award will
be remeasured subsequently at each reporting date through
the settlement date. Changes in fair value will be recognized
as compensation cost over that period. Although Toyota is
required to implement the standard as of the beginning of the
first interim or annual period that begins after June 15, 2005
under Statement No. 123(R), the Securities and Exchange
Commission has amended the compliance date and Toyota is
required to adopt the Standard for the year ending March 31,
2007. Management does not expect this statement to have a
material impact on Toyota’s consolidated financial statements.
In May 2005, FASB issued FAS No. 154, Accounting
Changes and Error Corrections—a replacement of APB No. 20
and FAS No. 3 (“FAS 154”). FAS 154 replaces APB Opinion
No. 20, Accounting Changes, and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial
Statements, and changes the requirements for the accounting
for and reporting of a change in accounting principle. FAS
154 applies to all voluntary changes in accounting principle. It
also applies to changes required by an accounting pronounce-
ment when the pronouncement does not include specific
transition provisions. APB Opinion 20 previously required that
most voluntary changes in accounting principle be recognized
by including in net income of the period of the change the
cumulative effect of changing to the new accounting princi-
ple. FAS 154 requires retrospective application to prior peri-
ods’ financial statements of changes in accounting principle.
FAS 154 is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15,
2005. The impact of applying FAS 154 will depend on the
change, if any, that Toyota may identify and record in future
periods.